McKEEVER INSTITUTE

OF

ECONOMIC POLICY

ANALYSIS

ARGENTINA: Economic Policy Analysis

This site presents an analysis of the Argentinan government's economic
policies compared to a list of 34 economic policies as prepared by Mr. Vicente Fernandez with the
McKeever Institute of Economic Policy Analysis in the Spring of 2001 (MIEPA). To read
the analysis scroll through this site. To learn more about the background
policies, click here

Several foreign born students living in California have completed a
study of their home country governments' economic policies as compared
to the MIEPA list of policies as outlined above. The study on Argentina
is shown below. The ratings herein are based on the following rating scale:

The Constitution provides for freedom of religion, and the Government
respects this right in practice. The Constitution states that the Federal
Government "sustains the apostolic Roman Catholic faith;" however, other
religious faiths are practiced freely Citizens in Argentina can move freely,
within and also to foreign countries. Argentina has enjoyed a high degree
of freedom since the come-back of democracy and I can proudly say, it is
one of the healthiest democracies in South America.

Source: Personal

2. Freedom of Speech: 3.5

If you had to rate Argentina’s freedom of speech historically it would
get very low marks. Starting with Peron, who suspended freedom of the press
and freedom of speech during his fist government in 1946. and followed
by military dictatorships through the 1970s, Argentina’s freedom of speech
record was very poor. Democracy’s come back in 1983 changed all that, today
Argentina enjoy a healthy record for freedom of the press and freedom of
speech for its citizens. Many of the dictators of the 1970s have been brought
to justice and are in jail.

Today, Argentina has a vibrant and robust media and the Constitution
provides for freedom of speech and of the press, and the Government respects
these rights in practice. A number of independent newspapers and magazines
publish freely, and privately owned radio and televisions stations broadcast
freely as well. All print media are privatised, but the Federal Government
still owns the Telam wire service, a television station, and a radio network.
A few provincial governments own broadcast media.

Journalists are organised into regional groups that come under a federation
national structure called Federación Argentina de Trabajadores de
Prensa. Within the union structure there is recognition of freelance journalists’
rights and efforts are made to organise this group.

Source: Personal and International Federation of Journalists. http://www.ifj.org
Data of access: 4/23/01

3. Effective, Fair Police Force: 2.5

Argentine law enforcement remained in the hands of twenty-three provincial
police forces and the Federal Police, which had jurisdiction in the capital,
Buenos Aires, and delegations throughout the country. Although reforms
were initiated in a number of forces, including the two most widely questioned-the
Federal Police and the Buenos Aires Provincial Police-human rights violations
by police remained frequent, and investigation and prosecution rare. Dozens
of such cases remained unresolved years after their occurrence.

Police abuses in Argentina included excessive use of force in controlling
demonstrations, Other cases included killings in alleged “shoot-outs” with
the police, in which investigations often demonstrated that the police
shot the victims point-blank and then fabricated evidence of a shoot-out
(such as the planting of a gun on the victim’s body); the killing of innocent
bystanders during armed confrontations between the police and criminal
suspects; deaths in police custody, frequently after beatings to force
confessions, later often described as suicide; so-called “easy trigger”
cases in which police officers shot to kill rather than seeking to detain
suspects (sometimes due to minor provocations); “disappearances” in police
custody; and harassment of or attacks on witnesses to these crimes.

Although formal restrictions on the right to freedom of expression did
not exist in Argentina, threats and attacks on journalists continued to
occur. From 1995 through October 1998, forty-three journalists were attacked
in Argentina, according to the Committee to Protect Journalists. Reforms
began in the Buenos Aires Provincial Police, including the placing of the
entire force under civilian control in December 1997 and the removal of
300 superior officers from police functions for a variety of reasons, including
corruption and covering up criminal activity. Special brigades set up to
fight specific crimes such as drug trafficking were also dissolved, having
been determined to have become accomplices rather than enemies of this
type of crime. There is a lot more to do to bring the Argentine’s police
force to first world standards, specially in the provinces of the interior.
The scandals in recent years have helped bring attention to much needed
changes.

The Convertibility Law of 1991 forms the core of Argentina's foreign
exchange regime. It pledges that Argentina will maintain the peso at a
one-to-one exchange rate with the US dollar and make the peso freely and
fully convertible at market rates. Under the Convertibility Law, Argentines
and foreigners in Argentina are allowed to hold and use any currency. Contracts
and other transactions can be legally dominated and executed in any currency.
Most Argentines have a savings account in dollars and one in pesos, since
most of their mortgages and car loans are in dollars.

The Convertibility Law also transformed the Banco Central de la Republica
Argentina (BCRA, the central bank) into a currency board, preventing it
from issuing more currency than can be backed by foreign currency reserves.
This prevents the government from creating unbacked currency-"running the
printing press"-or monetizing deficits and thus limits inflation, contributing
to the stability and integrity of the monetary system At the same time
limits Monetary policy since the Central Bank can’t move rates up or down,
leaving only fiscal policy as a tool. The Convertibility Law that has brought
Argentina from hyperinflation to deflation this past years has been heavily
criticized as being the cause of the long recession Argentina has been
experiencing the last 3 years.

As main trading partners have devalued their currencies (Brazil and
Asia), Argentina has been left holding a very strong currency, since the
peso is tied to the dollar, which has been appreciating against major currencies
(Euro and Yen). As the Arg Peso got stronger, Argentina’s trade deficit
increased and factories moved to its neighbor, Brazil. On April of 2001,
finance minister Cavallo send a law to Congress that will change the Convertibility
Law, allowing the ARG Peso to be tied not only to the dollar but also to
the Euro. According to Cavallo, this measure reflects the important role
of the European Union as a trading partner. The new law will go into effect
as soon as the Euro reaches parity against the US Dollar. So then the Arg
Peso will be 50% Euro and 50% US Dollar. Lets hope this new measure takes
Argentina out of a recession that has been going on since 1997.

Argentina's banking system began 1998 further consolidated and strengthened
by recent large foreign investments. Peso and dollar deposits in the banking
system grew strongly and reached nearly $70 billion at the end of 1997--close
to twice the level in June 1995, when bank deposits hit a low of $37 billion.
Despite the turmoil in international capital markets following Russia's
devaluation of the ruble in August 1998, total deposits in Argentina's
banking system-as well as the country's international reserves-have remained
stable.

Foreign-controlled banks now hold about 50% of total Argentine bank
deposits. Four of the biggest commercial banks are owed by foreign banks.
Except for Banco Galicia y Buenos Aires, we have Citibank owed by Citigroup
of USA, Banco Rio owed by Santander of Spain, Banco Robers owed by HSBC,
Banco Frances owed by Bilbao of Spain. In late 1997, shortly after the
Asian financial crisis began, the Government of Argentina reassured investors
that the country's banking system and reserves were strong enough to withstand
the storm.

Bank financing and lending costs are still high by industrialized country
standards. Credit is very expensive for certain sectors. Easier lending
for small and medium sized firms and improved credit risk management is
essential to foster job creation. The Argentine banking system suffers
from the “crowding out effect”, too much money in the system is being absorbed
by the National government and almost no money is lended out to individuals
and small and medium size firms. It is easier and less riskier to lend
to the Government in the form of T-Bills. The Banking system has a long
way to go. It has in Argentina one of the lowest penetration rates in Latin
America.

Argentina is one of the most wired countries in Latin America, as a
result of deregulation that privatised the state owed telephone company
in the early 90s. Today Argentina has also created a Secretary of Communications
to deal to mobile licenses and internet providers.

Telephones - main lines in use: 10.5 million (1999) Telephones - mobile
cellular: 3.0 million (1999) Telephone system: 12,000 public telephones;
extensive modern system but many families do not have telephones; despite
extensive use of microwave radio relay, the telephone system frequently
fails during rainstorms, even in Buenos Aires.

Domestic: microwave radio relay and a domestic satellite system with
40 earth stations serve the trunk network

Railroads, highways, and air routes spread out from Buenos Aires, linking
most of Argentina's cities and towns with the capital. The country's roads
carry far more people and freight than do the railroads. Air transportation
has grown in importance because of the long distances between Argentine
cities. Buenos Aires has two major airports. More than 50 Argentine cities
have regularly scheduled passenger flights.

Even though Argentina has the highest literacy rate in all of Latin
America, education has been suffering lately because of the long recession.
Teacher’s strikes are common and public universities to which acceptance
are indiscriminate and free and overwhelmed by students and the lack of
teachers.

The system of schools, primary, secondary and high school are located
in the same facilities. Children start primary education at the age of
5 to 6, secondary at the age of 7 to 12 and high school from 12 to 17.
After which comes University, where most people go for a degree, for example
if you want to be a lawyer you will spent 6 years in university, a business
major about 5 years. Very few people come back for a master degree since
it is not needed to practice. Unlike the US with its undergraduate and
graduate school.

Argentina provides free public elementary and high school education.
The country also has many private schools, which charge tuition Argentina
has about 45 universities. The University of Buenos Aires is the largest
university in South America. It has more than 200,000 students. Access
to university is easy and universal. Anybody can go to public universities
which at the same time are regarded as the best in the country. However
surviving in those public institutions can be very difficult, for the huge
number of students and low budgets they work under. Literacy: definition:
age 15 and over can read and write total population: 96.2% male: 96.2%
female: 96.2% (1995 est.)

Source: Personal and http://www.cia.gov/cia/publications/factbook And
personal Data of access: 4/23/01

9. Social Mobility: 2.5

In Argentina, for example, 53 percent of respondents identify themselves
as middle class, including 67 percent of those in executive and professional
jobs and 73 percent of people who, on further study, actually fall into
the highest economic class. Class mobility in Argentina is very flexible.
It is a country of immigrants like the U.S. and one can go up in society
according to his/her own merits.

Argentina has always had one of the strongest middle classes in Latin
America and the highest per capita income (US $ 8,000). But lately this
middle class is the one most damaged by the prolonged recession. Many Argentines
of Italian and Spanish descend; especially the young have been forced to
immigrate to the same countries their grandparents came from. Others have
opted for the US ,and Miami has one of the fastest growing Argentine’s
population.

Even though education is available to all, unemployment has prevented
many Argentines, especially the young ones to find a job, thus maintain
the same living standards that their parents and grandparents enjoyed at
the beginning of the century and in the 1950s to 1970s. Emigration by the
young professionals will continue unless the government finds a solution
to Argentina’s economic problems and is able to create jobs for its youth.
One of three young Argentines has expressed the desire to leave the country
once they finish university.

Source: Personal

10. Freedom from Outside Control: 2.0

Argentina’s major dependency is to Economic Organisms. And opposition
parties in government to raise anger in the population have played this.
More populist candidates have always tended to blame the IMF for Argentina’s
woes. The International Monetary Fund played Santa Claus over the holidays
and organized a rescue package for Argentina worth $40 billion, which was
officially approved on Jan. 12. The deal allows Argentina to avoid defaulting
on its $124 billion in foreign debt. That's as good as the news gets, however.

A close look at the agreement shows that it has little chance of solving
Argentina's problems in the long term or putting its economy on a robust
growth path in the near future. Argentina joined the IMF in 1956. It has
borrowed money from that organization in 34 of the last 45 years. In March
of last year, the IMF loaned $7.4 billion to help Argentina launch a fiscal
responsibility plan, a combination of tax increases and spending cuts aimed
at bringing the public-sector deficit into balance by 2003. By September
2000, it was apparent that the target date would be missed. Rather than
suspend the loan, the IMF wants to provide a new loan, and push the target
deficit date to 2005. Yet tax-and-spend policies are not a good recipe
for growth.

The Argentine economy has performed poorly since 1995, growing at an
annual rate of 1 percent per capita on average. There are two reasons for
that poor performance. First, Argentina has one of the most regulated labor
markets in the world. Second, taxes are too high. Argentina's problems--and
the solutions to those problems--are homegrown. The IMF is responsible
for giving money and bad advice to the Argentines. Unfortunately, that
is unlikely to stop. For years the fund has touted Argentina as its model
client. To leave her now would deal a severe blow to the fund's already
tarnished reputation. Buenos Aires knows that and behaves accordingly,
failing to make the necessary reforms to get the economy on the path to
sustained growth. Knowing that the IMF will come to its rescue time and
again, the Argentine government has little incentive to reform. And thus
the charade continues.

Source: Personal and Argentina's Addiction to IMF Money by L. Jacobo
Rodríguez, assistant director of the Project on Global Economic
Liberty at the Cato Institute, www.cato.org Data of access: 4/23/01

11. Foreign currency transactions:3.0

Argentina’s convertibility law passed in 1991, requires to back every
peso in circulation by a dollar in reserves. This has made Argentina an
almost dollarized economy. Argentines are allowed to keep saving and checking
accounts in US dollars as well as in Pesos. The government monthly T-Bill
auctions are also conducted in US$ dollars and in ARG $ Pesos.

The extent of dollarization is such that most if not all of car loans
and mortgages are in dollars. Leaving almost no room for the government
for devaluation that would bring chaos to the financial system and population
as a whole. Most recently and because of its ties to the US dollar the
Argentine economy has not been able to grow and has incurred a trade deficit
with its counterpart Brazil who has seen the Real devalue almost 50% since
1998. The last measures introduced by Cavallo, was to change the peg of
the Arg peso to the dollar and make it 50% US dollar and 50% Euro. To reflect
thus a more important trading partner of the Argentine’s economy who is
the European Union.

The strength of the dollar has helped Argentina contain inflation but
lately and because of an overvalued currency it has brought a worse evil
called Stagflation. Lets hope the new peg, helps Argentina grow again.

Border Control in Argentina has been a source of headaches for the Government
lately because of a number of reasons. First illegal immigration from Bolivia
and Paraguay, composed of workers looking for jobs in factories and construction
in urban areas. Second, the Government has been trying to contain illegal
smuggling of cattle from Brazil, which has infected Argentina’s cattle
with foot and mouth disease. Also there has been drugs smuggling from Bolivia
and illegal trade coming from Paraguay.

Source: Personal Data of access: 4/14/01

13. Cultural, Language and Homogeneity: 4.0

Argentina has a population of approximately 35 million. More than 10
million people live in Buenos Aires and its surroundings. Rosario and Cordoba
have approximately 1,5 million each one. Mendoza, Tucuman, La Plata and
Mar del Plata each have a population of a half million

It is important to consider some ethnic, cultural and social characteristics
of Argentina’s people, which differentiate it from other Latin American
countries. The population is largely composed of European descendants and
still has strong ethnic and cultural ties with Europe, especially with
Italy and Spain. It is said that ¨... the Mexican people descends from
the Mayas, Peruvians from the Incas, but the Argentine population descend
from the boats...¨. For this reason Argentina has always welcomed foreign
people, particularly foreign investors.

Another characteristic to be noted is that Argentina’s people have received
high levels of education since the nineteenth century. Most of the country
has access to 12 years of education. The number of students in the universities
has grown remarkably from mid 60´s to present days. Therefore Argentines
are trained for different kind of jobs. Argentine workers are more highly
trained and better paid, on average, than labor in other Latin American
or Mercosur countries Finally, approximately 79% of the population is urban.
Most of them are mid-class and work as employees, professionals or entrepreneurs.
Ethnic groups: white (mostly Spanish and Italian) 97%, mestizo, Amerindian,
or other nonwhite groups 3% Religions: nominally Roman Catholic 92% (less
than 20% practicing), Protestant 2%, Jewish 2%, other 4% Languages: Spanish
(official), English, Italian, German, French

Argentina’s political effectiveness during the prior government by Saul
Menem was many times achieved through governing by decree. Nonetheless
Menem was much more effective than his predecessor’s Alfonsin from the
Radical party who was pushed to call early elections because of hyperinflation.
Menem and its finance minister Cavallo, brought inflation to single digits
and more recently to deflation. Menem privatized a number of state-owed
companies and brought back foreign direct investment. Nonetheless most
reforms were passed through decrees.

The current government of Fernando de la Rua has find it more difficult
to govern because a coalition of parties was needed to beat the incumbent
Peronist party of Menem. And also convertibility instituted by Cavallo
has make it harder for Argentina to grow, Cavallo is now back and most
of the government efforts has concentrated in calming international capital
markets and assuring the population that growth will come back. Cavallo
has made it easy for De La Rua to pass key reforms because of his skill
to negotiate with Congress. In conclusion I must say that Argentina, for
a young democracy and putting aside the corruption scandals, it has moved
effectively and fast in trying to bring the country and its economy back
to good health.

Source: Personal

15. Institutional Stability: 3.0

Argentina’s experience with dictatorship was not a pleasant one, the
curious thing was that most military governments were arranged or called
by political parties that did not want the opposition to govern. Democracy
is in good shape, now, after coming back in 1983. But its stability lies
more in the mind of the population than its actual institutions.

The legislative and judicial system in Argentina are not still independent
as they are in very strong democracies such as the US. More recently the
Senate has been the focus of a bribery scandal started at the Executive
branch. Also the judicial system has been the recipient of many critics,
and accusations that they are influenced by the President (who elects them)
in their decisions. Argentina has completed a giant step, which is to establish
and support democracy, now it must support and strengthen the institutions
that give democracy its soul. And those are the legislative and judicial
powers.

Source: Personal

16. Honest Government: 2.0

Argentina has always had a reputation of corruption. Corruption scandals
tend to appear on a weekly basis. And most recently has pushed President
Fernando de la Rua to create a new ministry for Ethics. The past government
of Carlos Menem, has now most of its ministers in jail or being investigated
for a number of corrupt acts that range from illegal arms deals with Croatia
to drug trafficking and bribe scandals during the privatization of most
state owed enterprises during the Menem’ s years.

Most recently the government of De la Rua accused of a bribery scandal
that involved the Senate has sent a bill to cut state funding of the parties,
restrict television advertising and ban anonymous donations, De la Rua
said the bribery allegations must be "completely, totally and finally cleared
up" if the Alliance government is to be credible in its struggle against
corruption. The new law is meant to make it harder for individuals or companies
to channel money to politicians in hopes of influencing decisions. The
10-month old government hopes that sending the bill to Congress will show
the public it remains committed to fighting corruption and help repair
its reputation for honesty, which has taken a battering from suspicions
that officials bribed opposition Peronist senators to pass a labor market
reform in April. Political parties will not be allowed to take donations
from unions, from groups linked to gambling, or from foreign countries
and will have to make their accounts public. Parties will also have to
select their presidential candidates in national primaries open to all
voters who are not registered with other political groupings. Violations
will be punishable with prison sentences and fines.

But campaign spending has not been a major issue in Argentina in recent
years, and the new measures may fail to displace the bribery scandal in
the minds of voters. A federal judge has named 11 of the nation's 69 senators
as suspects in the case and has said he thinks the money for the alleged
bribes came from the government, but has not pointed the finger at any
officials. The Argentine’s middle class is tired of a corrupt government
that in their minds has prevented Argentina form joining the first world
economies even with its vast resources. One of the reasons the Peronists
lost last election was its poor record in the corruption field. Lets hope
De la Rua does not fall in the same trap.

Argentina. Originally a Constitution and Common Law system similar to
that of America, but now heavily Roman. Some Natural Law influences. Argentina
Judicial system is a civil code system that relies on the “Codigo Penal”
or written laws.

The Judicial branch in Argentina has been the most criticized since
democracy made a come back in 1983. The main criticism has been that it
has not been able to maintain its independence from the Executive branch.
The president is the one who chooses the members of the Supreme Court and
their independence from the President ‘s agenda has always been doubtful.
Justice in Argentina is equal to all, there is no favoritism towards social
classes or economic status.

Source: Doing business in Argentina www.pjn.gov.ar And personal Data
of access: 4/14/01

18. Central Bank: 2.5

The Argentine banking system has undertaken significant reforms in the
past few years. The primary goals of these reforms have been to reduce
regulation, lower interest rates and increase competition among banks,
thereby lowering the cost of, and increasing access to credit. New laws
have permitted the creation of certificates of deposit, savings accounts
and checking accounts denominated in U.S. dollars

Most recently the Central Bank’s President, Pedro Pou, has been pressured
to resign because of a study by the US Senate implicates numerous financial
institutions in Argentina in money laundering, among them Citibank. Also
Pou is being criticized by the Argentine’s new finance minister, Domingo
Cavallo who accuses the Central Bank of not executing the proper monetary
policies that would spur growth in the national economy. Among them keeping
bank reserves too high, thus preventing them from lending. The market has
lately been unhappy by the intervention by the finance minister in the
affairs of the Central Bank. The attempt by Cavallo to intrude in the Central
Bank’s affairs by a presidential decree has undermined the markets’ perception
of the independence of the Argentine Central Bank.

In the first half of this year, the public sector deficit remained at
US$ 2.2 billion, which was below the US$ 2.6 billion fiscal target set
under the terms of the Stand-by Agreement with the International Monetary
Fund (IMF). Nevertheless, increased concern over the impact of lower economic
activity and declining consumer prices on tax collection, prompted the
Economy Ministry to renegotiate the US$ 4.7 billion fiscal deficit target
(1.6% of GDP) with the IMF.

Since the government was almost certain to overshoot its fiscal deficit
target, the IMF consented to raise this year’s fiscal deficit limit to
US$ 5.3 billion in early September. Simultaneously, the government set
new fiscal deficit targets of US$ 4.1 billion (up from US$ 2.8 billion)
and US$ 2.4 billion (up from US$ 600 million) for 2001 and 2002. Despite
the hefty increase in the planned deficits for the coming two years, the
government believes that the goal of reaching fiscal equilibrium by 2003
is still within reach. Argentina’s constant increase of its fiscal deficit
has prompted the resignation of 2 finance ministers in the last month and
the comeback of Domingo Cavallo, the father of the "convertibility law".
Cavallo who is trusted by the markets has won from the Congress in the
last week executive powers that will help him bring back growth to an economy
that has been in a recession for the last 3 years. The latest estimates
for the budget deficit this year is US$ 6.5billion.

Argentina is one of Latin America’s largest debtors. Argentina's total
public sector debt totaled nearly $123.67 billion on Sept. 30, 2000, slightly
higher than 1999's year-end total of $121.88 billion, according to figures
released by the Economy Ministry on Tuesday. The debt, most of it owed
to foreign creditors, was made up of $118.37 billion in mid- and long-term
debt, which included $88.06 billion in bonds and $30.30 billion in loans.
The remaining $5.30 billion was made up by short-term debt, all of it domestic
treasury bills, the ministry said in a statement.

The Economy Ministry said the gross, or total, public sector debt was
$123.666 billion as of Sept. 30. Its net debt, which subtracted its financial
assets, was $114.596 billion. Argentina, Latin America's biggest foreign
borrower, has $16.4 billion in public sector debt coming due next year.
Argentina, which has struggled through two years of economic stagnation,
clinched an IMF-led $39.7 billion financial aid package, which it unveiled
last week. The center-left government of President Fernando de la Rua actively
sought the package to quell fears the country would default on its debt.

According to the economy ministry, 67.94 percent of the gross public
debt is in U.S. dollars, 19.66 percent is in euros, 6.08 percent is in
Japanese yen, 4.89 percent is in Argentine pesos, 0.71 percent is in British
pounds, 0.65 percent is in Swiss francs and the remaining 0.07 percent
is in other currencies.

Source: bloomberg www.bloomberg.com Data of access: 04/01/01

21.Private Property: 3.0

On private property from the Argentine’s Constitution Section 17 []
Property may not be violated, and no inhabitant of the Nation can be deprived
of it except by virtue of a sentence based on law. Expropriation for reasons
of public interest must be authorized by law and previously compensated.
No personal service can be requested except by virtue of a law or sentence
based on law. Every author or inventor is the exclusive owner of his work,
invention, or discovery for the term granted by law. The confiscation of
property is hereby abolished forever from the Argentine Criminal Code.
No armed body may make requisitions nor demand assistance of any kind.
.

Argentina adheres to the Roman legal tradition that the author is the
physical person who created the work, and that as such, the author has
rights which are not assignable, transferable or revocable. Unlike the
Anglo-Saxon system where, for example, original ownership of a work may
be granted by an employee to an employer who has funded the creation of
a work, in Argentina, only the author is the original owner of the rights
in the work. The author may assign the economic or patrimonial rights in
a work to a third party, but that author may never be separated from certain
inalienable rights in the work, such as the right to preserve its integrity
or the right to paternity of the same.

Inadequacies of information and moral hazard problems associated with
official explicit and implicit safety nets (that is, guarantees and bailouts)
can either blunt the impact of market discipline or cause it to operate
in a delayed and draconian way. If market participants cannot obtain timely
and comprehensive information on the borrower’s creditworthiness, they
will not be able to price the borrower’s obligations correctly. And if
borrowers know that certain kinds of financial information do not have
to be disclosed publicly, they will be more likely to hide their problems
under those rugs (statistics). Recent crisis among large international
borrowers such as (Mexico 1994, South East Asia 1997 and Russia in 1998),
have increased awareness and demands from lenders with respect to financial
disclosure. US Treasury Secretary Lawrence H. Summers has argued that the
single most important innovation shaping the American capital market was
the idea of generally accepted accounting principles.

During the past 24 months, progress has been made in addressing information
and disclosure weaknesses. The IMF’s Special Data Dissemination Standard
(SDDS) has been amended to include data on reserve-related contingent liabilities
(that is, on net international reserves) and to provide better coverage
of the foreign liquidity position of the corporate and government sectors.
The Bank for International Settlements (BIS) has upgraded its international
banking statistics, and the Basle Committee on Banking Supervision has
prompted large international banks and securities firms to be more forthcoming
about their derivative positions. Several of the Asian economies-including
Japan and China-are also in the process of revamping their loan classification
procedures. And, in a break with tradition, in April 1999 the IMF initiated
a pilot program under which member countries can agree to have their full
Article IV country reports published.

Argentina being one of Latin America ‘s largest borrowers of capital,
from capital markets in the US, Europe and Japan. And also being part of
the IMF and World Bank programs maintains a top level of financial disclosure
which meets international organisms and Wall Street demands. Argentina
finance ministry is one of the top ranked in Latin America for its disclosure
practices to the public and the markets.

Source: Safeguarding Prosperity in a Global Financial System The Future
International Financial Architecture Report of an Independent Task Force
http://www.foreignrelations.org/public/pubs/IFATaskForce.html#3.3. Data
of access:04/01/2001

23.Protection of Public Health and Safety: 3.5

Argentina has one of the best Public health records in Latin America.
The health services system consists of 1) a public model, publicly financed
and maintained and 2) a compulsory social security system based on obras
socials (OS) plans and a 3) private model made up of various voluntary
insurance schemes based on actuarial risk and or direct fee-for-services.
According to a survey in 1998 total health expenditure represented 9.8%
of total GDP., and per capital expenditure was US$810 per person. In 1998
according to the world bank, US$ 20billion was spent on health.

The average worker would need to work for thirteen years to accumulate
the amount of money spent by the average provincial lawmaker in one month,
a recent government report revealed. The average sum received each month
by individual legislators from Argentina’s 23 provinces and the city of
Buenos Aires is 52,833 pesos. The average salary of the Argentine worker,
meanwhile, hovers just over 320 pesos per month. The figures for monthly
legislature expenditures, released yesterday by the Economy and Labour
Ministries, include each lawmaker’s salary and administration expenses,
in addition to parallel costs for his or her employees.

The report, which raises eyebrows about legislative efficiency across
the country, comes at a moment when the administration of President Fernando
de la Rúa is pushing a series of government reform proposals designed
to streamline the gargantuan federal deficit and promote bureaucratic efficiency.
While the national average for worker salaries was calculated at 321 pesos
a month, the average salary for the federal capital of 442 pesos monthly
far exceeded the national norm, followed closely by the southernmost province
in the country, Tierra del Fuego, 419 pesos. Poverty is a major issue.
Despite the high standard of living obvious in Buenos Aires, the World
Bank says 29% of Argentines, including 43% of it’s children, live in poverty.
The figure is considerably higher than in Chile, despite Argentina having
a per capita GDP, twice Chile’s level. This is explained by massive income
inequalities. The wealthiest 10% of the country share 36% of national income,
while the bottom 30% just 8.2%.

Unlike the U.S. and Western European countries, Argentina has only recently
evidenced its concern regarding environmental issues. The recent enactment
of Article 41 and 43 in the Argentine Constitution, as well as new federal
and provincial legislation, have strengthened the legal framework for dealing
with damage to the environment. Legislative and government agencies have
become more vigilant in enforcing the laws and regulations regarding the
environment increasing sanctions for environmental violations.

Under the new articles 41 and 43 of the Constitution mentioned above,
all Argentine inhabitants have both the right to an undamaged environment
and a duty to protect it. The primary obligation of any person held liable
for environmental damage, is to rectify such damage according to and within
the scope of the applicable law. The federal government sets the minimum
standards for the protection of the environment and the provinces and municipalities
establish specific standards and implementing regulations. This new article
in the Constitution also forbids the introduction of hazardous waste, including
radioactive waste, into the country. Specific federal, provincial and municipal
environmental regulations exist for numerous industrial activities and
industries such as oil and gas, mining, food, medical waste disposal and
radioactive material transportation. Environment - international agreements:
party to: Antarctic-Environmental Protocol, Antarctic Treaty, Biodiversity,
Climate Change, Desertification, Endangered Species, Environmental Modification,
Hazardous Wastes, Law of the Sea, Marine Dumping, Nuclear Test Ban, Ozone
Layer Protection, Ship Pollution, Wetlands, Whaling signed, but not ratified:
Climate Change-Kyoto Protocol, Marine Life Conservation

The Argentine military establishment is one of the most modern and best
equipped in Latin America and has historically played a prominent part
in national affairs. The army is a national militia, with service compulsory
for all able-bodied male citizens between the ages of 20 and 45. Up to
14 months of full-time duty are required. The army has a strength of about
40,400 men.

The navy consists of an aircraft carrier, six missile-equipped destroyers,
and a number of lighter ships and submarines; it has a strength of about
21,500 men.

The air force, with 8900 men, has about 200 combat aircraft, including
jet fighters and bombers.

ARGENTINA IN PEACE-KEEPING OPERATIONS: Argentina takes part in Peace-Keeping
Operations (PKO) since 1958 up to present. In 1958, the first Argentine
Military Observers were deployed in Lebanon. The first Naval Unit with
UN flag was integrated by Argentine ships exclusively. In 1998, the 40th.
Anniversary of the participation of Argentina in Peace-Keeping Operations
was celebrated. · At present, Argentina holds the 8th. position
in the rank of Troop Contributors to the United Nations. Argentina is currently
participating with more than 500 men in the following Peace-Keeping Operations:
(February 1, 2001) UNFICYP (Cyprus). UNIKOM (Irak-Kuwait) UNMIBH (Bosnia
Herzegovina) UNTSO (Middle East) MINURSO (Western Sahara) UNMOP( Prevlaka)
UNMEE (Etiopia-Eritrea) UNMIK (Kosovo) MINUGUA (Guatemala).

Currently, the most important presence of Argentine troops can be seen
at UNFICYP (Cyprus). Besides the troops, Argentina is in charge of the
Helicopter Unit. · Near Buenos Aires (Argentina), there are two
training centers, open to third parties: the CAECOPAZ (Training Center
for Blue Helmets), directed by the Argentine Army, and the CENCAMEX ( Training
Center for Members of Peace Missions Abroad), directed by the Argentine
National Gendarmery (Civil and Border Police).

A key development in helping Argentina meet its external payments is
the dramatic growth in Argentina's foreign trade since 1990. Foreign trade
plays an increasingly important role in Argentina's economic development.
Exports currently represent less than 10% of Argentina's GDP. This percentage
should rise as Argentine export competitiveness improves--a result of increased
productivity generated by new investments, diversification of export products
and markets, and very low domestic inflation. Grain output reached a record
of over 60 million tons in 1998 as adoption of new technology and management
practices significantly increased productivity. Fresh Argentine beef was
exported to the U.S. market in August 1997 for the first time in over 50
years, and other export prospects improved tremendously. However, export
growth slowed sharply in 1998 due to lower world prices for petroleum and
agricultural commodities. Slower growth in Brazil also adversely affected
Argentine exports, especially in the automotive sector.

Meanwhile, lower GDP growth contributed to a reduction in the rate of
import growth. Capital goods continued to account for over 40% of total
imports. MERCOSUR, a regional customs union and emerging trade bloc (which
includes Argentina, Brazil, Paraguay, and Uruguay, and has associations
with Chile and Bolivia), is one of the largest and most dynamic integrated
markets in the developing world. Close cooperation between Brazil and Argentina--historic
competitors--is key to MERCOSUR's impressive growth. Argentina's trade
with the other members of MERCOSUR has grown fivefold since 1991. (During
that period, its total foreign trade doubled). As a result, Argentina will
focus more attention on deepening MERCOSUR relations. MERCOSUR needs closer
coordination of macroeconomic policies and better dispute resolution mechanisms.
Ties to MERCOSUR will take on added importance in coming years. Argentina's
trade and investment have tremendous potential to grow along with hemispheric
economic integration.

The 1998 financial turbulence triggered by the Russian devaluation underscored
that macroeconomic conditions in Brazil--Argentina's most important trading
partner--are important variables for Argentina's foreign trade in 1998
and beyond. On an upbeat note, Chile's association with MERCOSUR has improved
access for Argentine exports to East Asia via Chilean ports. The U.S. registered
trade surpluses with Argentina every year from 1993 to 1997 totaling nearly
$13 billion. The annual surplus reached $3 billion in 1997--due in large
part to Argentina's continued demand for capital goods, as well as the
recovery of the local economy. The U.S. surplus with Argentina could climb
to a record $4 billion in 1998. This trend reflects the Argentine Government's
policy of encouraging modernization and improved competitiveness for Argentine
industry. GDP - composition by sector: agriculture: 7% industry: 29% services:
64% (1999 est.) Agriculture (8.5% of GDP, about 60% of exports by value):
Products--grains, oilseeds and by-products, livestock products.

The traditional wealth of Argentina lies in the vast Pampas, which are
used for extensive grazing and grain production. The Pampas at the same
time constitute the main source of foreign currency for the country, in
terms of exports. Nonetheless this sector has been the most damaged by
Argentina’s convertibility law, which ties the peso to the dollar. With
the appreciation of the dollar in recent years against major currencies
and against the currencies of Argentina main trading partners, Argentina’s
farmers have found extremely hard to sell their products overseas or their
main Mercosur partner, Brazil.

Argentine mineral resources, especially offshore deposits of petroleum
and natural gas, have assumed increasing importance in recent decades Argentina
has an important oil industry and has a wealth of energy resources, including
oil, natural gas, and hydroelectric potential. Argentina is a net exporter
of oil, gas, and electricity primarily to its neighbours Brazil and Chile.
Hydroelectric power in Argentina is currently being developed even though
most rivers and waterfalls with potential energy are located far from industrial
centres, these technical limitations are being overcome.

Oil and gas fields belong to the State. Until very recently Y.P.F. (the
National Oil Company) held the exclusive right to prospect, drill and operate
in certain "reserved areas", and Gas del Estado (the National Gas Company)
held the exclusive right over natural gas and its transport and distribution.
The Government could grant prospecting rights to private concerns in "non-reserved"
areas, but the discovery of oil or gas did not automatically entitle them
to any further operating rights. Exploration and operating permits were
granted to private companies only as a result of special tenders called
by the Executive Power, and the refineries located in the country were
required to use oil extracted in Argentina unless there were technical
reasons that called for the use of imported oil, besides which the Executive
Power set crude oil prices.

Starting in 1989, however, the Government has gradually been deregulating
the oil and gas industry through various decrees which among other things
have: Allowed crude oil to be marketed freely. Granted licenses in secondary
areas, freed old licenses and in general deregulated exploration. Lifted
controls over oil prices. Eliminated restrictions on the setting up of
refineries. Eliminated restrictions on the setting up and ownership of
service stations. Done away with restrictions on imports and exports and
largely suppressed customs duty. Deregulated Y.P.F. pipelines, with free
access to them at international market rates. Ÿ Privatized Y.P.F., now
a private corporation which stock is quoted in New York in the over the
counter market. Gas del Estado was privatized at the end of 1992 after
being split up into various area companies and a Gas Regulatory Body created
following U.S. practice. Gas prices will be freed as of January 1, 1995
(prior to this date the producers may only sell to Y.P.F., Gas del Estado
and the companies succeeding them following privatization). As a result
of the deregulation process, the private sector now controls 100% of the
transportation and distribution of gas and 47% of the production of oil
and the distribution of its byproducts.

Gross Domestic Product Between 1991 and 1999, Argentina’s GDP
increased 53.0%. GDP grew in each year between 1991 and 1994, driven by
political and economic stability, consumer confidence and increased investment.
In 1995, however, GDP contracted due to the effects of the Mexican Crisis.
The Argentine economy began to recover in 1996 and grew every year until
1999. Argentina’s GDP declined by 3.1% in 1999, due primarily to Brazil’s
economic difficulties and the January 1999 devaluation of the Brazilian
real. The downturn in the Brazilian economy led to a reduction in Argentine
exports and imports of capital goods and other goods and services.

During 1999, the total supply of goods and services declined 4.0% compared
with 1998, reflecting the decrease in Argentine economic activity as well
as a 10.9% decrease in imports of goods and services, particularly capital
goods. Demand declined during 1999 as well, reflecting a 7.5% decrease
in gross investment and a 1.2% decrease in exports of goods and services.
In recent months, however, improving economic conditions in Argentina and
Brazil have led to increased demand for Argentine goods and services. During
the first quarter of 2000, Argentine gross domestic product is estimated
to have grown by 0.9% compared to the same period of 1999.

Collective action has been a slow and painful process in Argentina since
its return to democracy. Elections continue to be concentrated on main
governments officials. A not very independent judicial system has not contributed
to the collective action process. With the pressure of international organisms
Argentina is making an effort to bring itself to international standards.
Nonetheless corruption and bureaucracy at the state and national level
as well as the judicial level has made this a very slow process.

A brief History: The deregulation, liberalization and privatization
programs, started in 1989, by president Menem, have caused a fundamental
change in the Argentine economy. On October 31, 1991, the Argentine government
promulgated its principal deregulation legislation which, in general terms,
deregulated the domestic market for goods, services and transportation,
abolished restrictions on certain imports and exports, and abolished or
simplified a number of regulatory agencies. In addition, restrictions on
foreign direct investment and capital repatriation were eliminated. On
September 8, 1993, the Argentine Congress adopted legislation abolishing
the three-year waiting period for capital repatriation, allowing foreign
investors to remit profits abroad at any time and to utilize local entities
and make use of domestic credit under the same conditions, and with the
same rights, as local investors. The process of deregulation and liberalization
continued with the privatization process, the reform of the social security
system, participation by Argentina in Mercosur, and further labor reforms.

The privatization and deregulation program and the friendly foreign
investment regime have created the appropriate environment for direct investment
into Argentina, attracting investors from Europe, Asia, North America and
Latin America.

Argentine Foreign Investment Regime. There are now no restrictions upon
foreign investors wishing to invest in Argentina either by starting up
new businesses or by acquiring existing businesses or companies. No prior
government approval is needed. The law states, as a general principle,
that foreign investors investing in economic activities in Argentina enjoy
the same status and have the same rights that the Constitution affords
local investors. Both are entitled to select any legal organisation permitted
by law, and to have free access to domestic and international financing.
There are no limitations on profit remittances (including dividends paid
to non-residents) nor upon capital repatriation. Therefore, all investors
enjoy the right to repatriate profits and capital at any time. Furthermore,
dividends, profit remittances and capital repatriation are not subject
to any kind of withholding tax.

Investment Protection and Promotion. During 1989, Argentina implemented
the 1958 treaty signed with the United States regarding the Overseas Private
Investment Corporation ("OPIC"), which is an agency of the U.S. government
that provides insurance to U.S. investments in developing countries. Later,
in October 1990, Argentina became a member of the Multilateral Investment
Guaranty Agency ("MIGA"), sponsored by the World Bank, which provides insurance
coverage for foreign investments made by persons or legal entities established
in member countries. In addition, in recent years, Argentina has signed
treaties for the promotion and protection of foreign investments with a
number of countries such as the U.S., Germany, Switzerland, Italy, United
Kingdom, Belgium, Japan, Canada, France, Chile, Spain, Sweden, Austria,
Holland, Denmark, and China.

As we can see, Argentina has one of the most open economies in the world,
this in exchange has caused put pressure in local firms that were not used
to foreign competition prior to 1989, when president Menem assumed power.
But at the same time, many firms have been benefited by Foreign Direct
Investment, making Argentina one of the top destinations for capital in
Latin America.

Menem came to power in 1989 by promising a return to the state regulation
of the economy, and a moratorium on the national debt, only to implement
one of the most rapid privatisation programs in the world. Yet it was only
in 1997 that international institutions hailed the restructuring of the
Argentinian economy over the past decade. The Menem government had pegged
the peso to the US dollar in 1991 and opened many areas of the economy
up to transnational companies. In just four years, it had privatised banks,
the national airline, railways, fuel, natural gas, electricity, telecommunications,
ports, water and sewerage services, and manufacturing, including steel,
various assembly operations, defense-related industries and the state oil
company.

According to a World Bank report: “The privatisation program was unique
in the world since it covered all major enterprises and it was accomplished
in record time”. IMF managing director Michel Camdessus said Argentina's
reforms would allow nations to achieve “high-quality growth of the kind
that will be genuinely sustainable over the long term”. An article in the
New York Times in 1997 predicted that the arrangement between the IMF and
Argentina, “would serve as a model for developing countries elsewhere in
Latin America”. Since 1989 in Argentina has privatized 45 firms . For example
: Aerolineas Argentinas in april 1990, bought by Spain’s Iberia, later
by American Airlines. Telecommunications: in November 1990, giant Entel.
Bought by Telefonica of Spain and Telecom of France. Oil and Gas: YPF in
1993, bought by Spanish Oil firm Repsol The national post office, in 1997:
bought by a consortium of national firms. Banco Hipotecario Nacional (national
mortgage bank, in 1999): bought by a consortium of foreign firms, including
Soros Asset Management. Conclusion: With Menem’s privatization program
Argentina became one of the countries with the least government managed
enterprises, leaving most of previously government owned business (including
the national post office), in the hands of private corporations (nationals
and foreign).

The president and a civilian minister of defense control the Argentine
armed forces. The paramilitary forces under the control of the Ministry
of Interior are the Gendarmeria (border police) and the Prefectura Naval
(coast guard). The Argentine armed forces maintain close defense cooperation
and military supply relationships with the United States. Other countries
also have military relationships with the Argentine forces, principally
Israel, Germany, France, Spain, and Italy. The lack of budgetary resources
is the most serious problem facing the Argentine military.

Current economic conditions and the government's commitment to reduce
public sector spending have slowed modernization and restructuring efforts.
Under President Menem, Argentina's traditionally difficult relations with
its neighbors have improved dramatically and Argentine officials publicly
deny seeing a potential threat from any neighboring country. In foreign
policy, Menem has dramatically made partnership with the United States
the centerpiece of his approach. Argentina was the only Latin American
country to participate in the Gulf war and all phases of the Haiti operation.
It has contributed to UN peacekeeping operations worldwide, and has offered
to send peacekeepers to Eastern Slavonia and police to the international
Police Task force in Bosnia. It offered to send a military medical unit
to the Gulf in support of the effort to secure Iraqi compliance with United
Nations resolutions.

In recognition of Argentina's contributions to international security
and peacekeeping, the U.S. Government designated Argentina as a major non-NATO
ally in January 1998. Menem is an enthusiastic supporter of the Summit
of the Americas process, which includes Argentina's decision to host the
Second Specialized Inter-American Conference on Terrorism in November 1998,
as called for in the Santiago Summit of the America Action Plan earlier
that year. At the UN, Argentina is one of the U.S.'s closest collaborators.
The Menem Administration supports the U.S. campaign to improve human rights
in Cuba and joins with the U.S. in international disarmament efforts, the
fight against international terrorism and narcotics trafficking, and efforts
to control global warming. In November 1998, Argentina also hosted the
United Nations conference on climate change. Eager for closer ties to developed
nations, Argentina has pursued relationships with the OECD and has left
the Non-Aligned Movement. It has become a leading advocate of nonproliferation
efforts worldwide. A strong proponent of enhanced regional stability in
South America, Argentina has revitalized its relationship with Brazil;
settled lingering border disputes with Chile; served with the U.S., Brazil,
and Chile as one of the four guarantors of the Ecurador-Peru peace process;
and restored diplomatic relations with the United Kingdom. In September
1995, Argentina and the UK signed an agreement to promote oil and gas exploration
in the Southwest Atlantic, defusing a potentially difficult issue and opening
the way to further cooperation between the two nations. In 1998, President
Menem visited the UK in the first official visit by an Argentine President
since the 1960's.

34. Protection of Domestic Enterprises from Government Mandated Costs:
3.0

From 1930 to 1989 Argentina became highly isolationist, fiscal deficits
increased enormously creating inflation that reached 5,000 percent per
annum in mid 1989. In 1991 President Menem adopted the "Convertibility
Plan", designed to reduce inflation and achieve long-term economic growth,
which included the convertibility of the Argentine peso into the US dollar
at the rate of 1 Ps. = 1 US$ and provided for a prohibition on indexation
(ending all price and wage adjustment clauses in contracts), certain tax
increases and improvements in tax administration, a reduction in public
sector employment, limits on Central Bank funding of official provincial
banks, a program to strengthen the social security system's finances and
the consolidation of the internal public debt owed to provincial governments,
suppliers, retirees, pensioners and other creditors. ? Even though convertibility
reduced inflation it became a mixed blessing, after the Asian crisis, followed
by the Russian crisis and Brazilian devaluation of 1998, the Convertibility
law became a burden for local enterprises as the Argentine Peso became
too overvalued against other trading partners currencies. The Argentine
economy is a commodity driven economy, as commodities prices plunged around
the world during the last decade, and its currency became overvalued, local
business that depended on the exports of grains, meat and the car industry
were highly affected by the convertibility law. The government hands are
tight since in order to keep foreign funds flowing into Argentina they
must keep Convertibility in place. As a result Argentina’s main industries
have been under continuous pressure. Layoffs are the norm and bankruptcies
are on the rise. It is ironic, that a law that was meant to help the country
escape an evil, inflation, drove the country into another evil, zero growth
because of an overvalued currency.

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